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Dollar General Post Record First Quarter, Trims Full-Year Outlook

Dollar General Corp. (DG) reported record sales, operating profit and net income for the first quarter of its fiscal 2013 year as growing demand for consumables overcome softness in weather-sensitive items. However, the company cut the top-end of its earnings forecast for the year “to reflect moderating sales growth and a lower expected gross profit rate” that originally thought.

For the quarter ended May 3, the retailer that caters to value shoppers reported total sales of $4.23 billion, up 8.5 percent from $3.90 billion in the year prior quarter. Net income totaled $220 million, or 67 cents per share, versus $213 million, or 63 cents per share in Q1 fiscal 2012. Adjusted net income, a more closely watched figure as it excludes one-time items, rose to $232 million, or 71 cents per share, from $215 million, or 63 cents per share, in last year’s quarter.

Analysts pretty much pegged the figures, expecting EPS of 71 cents on revenue of $4.24 billion.

Same-store-sales, or comparable sales at stores open more than one year, improved 2.6 percent. The company expects same-store-sales to accelerate to total four or five percent growth for the year.

Sales of consumable products, items like packaged foods or soap that are meant to be regularly replaced, increased by 11 percent to $3.2 billion. Sales of non-consumables “remain challenging,” according to Rick Dreiling, chairman and chief executive at Dollar General. Apparel and home products, the two smallest revenue contributors, rose modestly during the quarter, gaining 1.4 percent and 2.6 percent, respectively. Sales of seasonal products grew only 0.9 percent to $529.3 million.

Gross profits, as a percentage of sales, decreased 89 basis points from last year’s quarter to 30.6 percent. Higher markdowns and more consumable sales (which typically are lower profit margin) were attributed for the decline.

Inventories rose from $2.0 billion last year to $2.4 billion in the latest quarter as the company introduced new items, including tobacco products.

Dollar General repurchased 400,000 shares in the first quarter for an aggregate amount of $20 million. Another $624 million-worth of repurchases are still available from a plan introduced in December 2011. $876 million-worth of shares have already been re-bought in the plan.

Looking ahead at the full 2013 fiscal year, the company sees total sales increasing between 10 percent and 11 percent compared to fiscal 2012. Gross profit, as a percentage of sales, is expected to remain in line with the first-quarter’s percentage, marking a decline from 2012. Adjusted operating profit is forecast between $1.73 billion and $1.77 billion. Adjusted earnings per share are seen between $3.15 and $3.22. This lowers the high-end from DG’s previous guidance of $3.15 to $3.30 in profits and falls short of the $3.28 per share in earnings expected by analysts.

Shares of DG had a strong first half of the calendar year, climbing about 24 percent through Monday’s close at $53.55. Shares are coming out weak in Tuesday trade following the outlook for 2013, trading down more than 6 percent at $50.05.

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